Canada’s Health Care System: An Overview of Public and Private Participation

In Canada, one issue that tends to prevail — arguably more than any other in Canadian public policy debate — is the issue of health care and health care delivery. At the heart of this issue is the debate over public versus private health care. The purpose of this article is to provide an overview of

public and private sector participation in health care.

Generally speaking, Canada has a mixed public-private system — a system where the private sector delivers health care services and the public sector is responsible for financing those services. The Canadian system, however, is not completely consistent with this model. Canadian governments exercise considerable authority over the delivery of services by the private sector. Moreover, while governments fund the large majority of services, the private sector does play an important, albeit secondary, role in health care financing.

Public, private and mixed health care systems

Private sector delivery with public control

Predominately public with some private participation

List of article sources and links to more on this topic

Elements of the Canadian Health Care System

Federalism, healthcare delivery, healthcare financing

Federalism and the Healthcare System

A basic defining characteristic of Canada’s healthcare system is federalism. Canada is a federation, meaning that political power and authority is divided among and between levels of government. There is the federal government (the Government of Canada), empowered to enact laws for whole the country. Canada is further comprised of numerous sub-national or regional governments, referred to as provinces and territories. There are 10 provinces: British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island. Canada also has three territories: Yukon, Northwest Territories, and Nunavut.

Under Canadian federalism, the federal and provincial levels of government enjoy their own jurisdictions or areas of public policy. In many cases, one level of government has exclusive authority in a particular area of public policy. What does this have to do with Canada’s health care system? Under the Canadian constitution, health care falls largely under the authority of the provinces. Only provincial governments have the power to pass laws governing the financing and delivery of health services to the majority of Canadians. This, in turn, has had important implications for the Canadian health care system. Instead of developing a national system that is centrally administered and uniform across the country, Canada has essentially developed several provincial health care systems which differ significantly in structure and operation. In sum, one cannot speak of Canadian health care as a “single system,” but as a “patchwork” of provincial regimes.

This is not to suggest that the federal government plays no role in health care. Besides enjoying authority in some niche areas of health (such as providing Aboriginal healthcare and policing food and drug safety), the Government of Canada has exerted considerable influence through constitutional spending powers. The federal government is permitted to spend money in the area of health care, either through fiscal transfers to the provinces or directly to individuals and groups.

The federal government spends tens of billions of dollars annual in support of provincial health care systems. The federal government uses this money to influence provincial policy-making in the area of health care. It provides money to the provinces if they implement programs and policies that are consistent with federal objectives. Conversely, if a province institutes policies that directly contravene federal goals, the federal government can choose to withdraw its financial support. The Canada Health Act, federal legislation that sets out a list of criteria that must be met by the provinces if they are to receive annual federal monies, clearly illustrates the extent of the federal government’s leverage in the health care realm. The Canada Health Act includes the requirements that all provincial systems be publicly administered, comprehensive, universal, portable, and accessible.

The involvement of the Government of Canada has, in essence, extended the notion of Canada’s health care delivery system as a “patchwork” of provincial regimes. While each province has created its own health care system, federal-provincial cooperation has, over time, sewn these provincial regimes into a larger design.

Health Care Delivery

Within this patchwork of provincial systems, health care in Canada can be divided into two basic elements: delivery and financing. These distinctions are important when one turns to the question of public and private participation in the health care system, as each sector plays very different roles in the delivery and financing of medical services.

Health care delivery refers to the manner in which medical services are organized, managed, and provided. Central to health care delivery are the professionals who provide medical services to Canadians. In 2009, the health industry was the second largest employer in Canada, employing approximately two million people. This represented almost 12 percent of Canada’s total employment for 2009. (It is important to note that these statistics include health and other social assistance professionals.)

The health care industry includes a broad range of professionals. A key group is doctors or physicians, who work mostly in independent or group practices. Some doctors also work in health centres, hospital-based group practices or primary health care teams (see below for definition of primary care), or are affiliated with hospital out-patient departments. Another important group is nurses, primarily employed in acute-care institutions (such as hospitals), but who also provide community and home-based health care services. Other key groups of health care professionals include dentists, optometrists, laboratory and medical technicians, therapists, psychologists, pharmacists, public health inspectors, and speech language pathologists and audiologists.

In Canada, these health care professionals are usually organized into three types of services (Health Canada, 2007). The first are primary care services, which serve as the foundation of the Canadian health care system. Primary healthcare represents Canadians’ first point of contact for health services, and are largely provided by independent family doctors or group-doctor practices (groups of family doctors in the same practice)community health clinics, or telephone health information lines. Generally speaking, primary health care serves two key functions. This includes the direct provision of first-contact services, such as the prevention and treatment of common diseases and injuries, and basic emergency services. The other function of primary care services: coordinating the movement of patients to other levels of care, such as referrals to medical specialists and hospital admissions.

The second basic type of services are secondary care services. These include a broad range of specialized medical services not normally provided by family doctors or community health clinics such as acute emergency care, diagnostic testing, prescription drug therapy, rehabilitation services, counselling, and palliative care for those near death. While predominantly offered by hospitals, secondary health care services are also offered in specialized medical facilities and through home care.

The third basic type of services are known as additional care services. These include medical services not usually covered under provincial health insurance plans, such as prescription drugs, dental care, vision care, medical equipment and appliances, and independent living for seniors and those with disabilities. It is important to note, however, that what may be included in additional health services can vary significantly from one province to another.

Health Care Financing

The second basic element of any health care system is its financing — that is, how medical services are paid for. Generally speaking, in western industrialized countries, health care tends to be financed by two key sources: out-of-pocket payment and health insurance.

Out-of-pocket payment occurs when the patient must directly cover costs associated with a medical service. This type of financing may be further distinguished by complete payment and cost-sharing. Complete payment occurs when the patient must bear the full cost of the medical service. This can result from having no health insurance or receiving services that are covered by the health care user’s insurance plan. Cost-sharing, by contrast, includes out-of-pocket payments where the patient is required to cover only a portion of his/her medical services. A common example is insurance deductibles, where a patient pays a fixed amount to his/her insurance plan before any payment of benefits takes place. Another example is user fees, requiring that the patient pay a small fee to the healthcare provider (e.g. the hospital) upon receiving medical service.

The second key source of health care financing is health insurance. In broad terms, insurance is a means by which individuals pool the risk of incurring medical expenses. Instead of paying for their medical services directly from their own pockets, individuals or groups participate in a collective fund that covers their health care costs. Health insurance can be organized in different forms, with a basic distinction being public versus private insurance schemes. Public health insurance refers to schemes covering the community as a whole (or large segments of the community) which is imposed and controlled by a government unit. Private health insurance, by contrast, refers to schemes that are controlled and administered by non-governmental or private entities, and which usually cover only a small portion of the general population.

Public insurance schemes can be further distinguished by the manner in which they are funded. One approach is through insurance premiums, where individuals pay regular premiums into a public insurance fund to receive benefits. This is commonly referred to as social security financing. Another approach is through taxation, where the insurance plan is funded by the government through taxes paid by citizens and residents. Public insurance schemes can also take a mixed approach, funded by both premiums and general taxation.

Private insurance schemes are usually funded through premiums, which may be borne by the individual and/or his/her employer. Moreover, private plans can be either non-profit or for-profit. In non-profit schemes, the private insurer only seeks to collect premiums and other fees necessary to cover the costs incurred by the insurance fund, such as payment of benefits and administration costs. In for-profit schemes, the private insurer operates the insurance fund as a business, seeking to generate a profit by generating revenues above what is necessary to cover costs. More information on health care financing is included later in this article.

The Public-Private Distinction in Health Care

Public, private and mixed health care systems

The Canadian health care system can be characterized as a mix of public and private participation. At the outset, it is necessary to define the ideas of “public” and “private,” and the different ways the public and private sectors can and do participate in a health care system.

Public Sector in Health Care

Generally speaking, public participation refers to the involvement of government or the state in health care. The term “government” can include a wide range of entities, from the national or federal government, provincial governments, regional authorities, and local or municipal governments.

Public participation may come in many different forms. At a minimum, the state may regulate the health care system by imposing laws governing the delivery and financing of health care. The state may play a more extensive role, however, such as providing and funding health care services; this could include employing healthcare professionals, owning or controlling hospitals and clinics, or directly administering and financing public health insurance schemes.

Private Sector in Health Care

Private participation, by contrast, refers to the involvement of non-government entities in health care delivery. While the notion of “non-government” is quite broad, it generally includes for-profit businesses, charitable and non-profit organizations, as well as individuals and families. Private participation may occur in the delivery of health care services through private for-profit or non-profit hospitals and clinics and the financing of services through individual out-of-pocket payments and private health insurance.

Mix of Private and Public Participation

Most western industrialized nations do not have fully public or private health care systems. In other words, it is usually not the case that health care is completely delivered and financed by either the public or private sector. Instead, most can be characterized as being a mix of public and private participation, although they may differ significantly in the precise roles that the different sectors play.

The following table provides a breakdown of different possible types of health care systems. Quadrant1 represents a fully public system, in which the public sector both delivers and finances health care services. Quadrant 4, by contrast, represents a fully private health care system, in which the private sector delivers and finances services. The United States is often considered a country which has this type of health care system. For the most part American health care is both privately delivered and financed, though there is some deviation through vehicles such as Medicare and Medicaid.

Public Financing

Private Financing

Public Delivery

(1) National Health Service

(2) User Fees for Public Services

Private Delivery

(3) Public Health Insurance

(4) Private Insurance

(Source: Deber, 2002)

Quadrants 2 and 3 represent mixed health care systems. Quadrant 2 represents a system where health care services are delivered through public institutions, but are financed through private means, such as user fees. In Quadrant 3, healthcare is delivered by the private sector, but is financed publicly through mechanisms such as government administered and funded health insurance plans.

Canada most closely resembles the last of these mixed models. Health care services in Canada are largely delivered by private individuals and organizations, such as physicians and hospitals. These services, however, are financed by governments through public health insurance plans and direct funding to health care facilities. As will be discussed, Canada does not fit this private delivery/public financing model perfectly. While physicians and hospitals are private entities, governments exercise considerable authority over them. Moreover, the private sector plays an important, albeit secondary role, in health care financing that cannot be ignored or minimized.

Health Care Delivery in Canada

Private sector delivery with public control

Health care delivery refers to the manner in which medical services are organized, managed, and provided. In this regard, Canada has a system with a strong mix of public and private involvement. In most cases, private individuals and organizations are responsible for delivering medical services to patients. Nevertheless, provincial governments exercise considerable authority over the manner in which these private entities deliver services.

Physicians as Private Practitioners

Physicians play a central role in providing medical services. Primary care, also known as first-contact clinical service, is provided predominantly by family or general physicians. Doctors are also central to secondary and additional-care services, providing specialized medical services in hospitals, clinics, and long-term care facilities.

Most physician services in Canada are provided through what is effectively a private, owner-operated small business. Physicians are not employed by the state, but operate as independent private practitioners, contracting their services to the state or general public. In this context, the vast majority of physicians work in a private office or clinic settings, either as solo practitioners or in group practices with other physicians.

Physicians by Type of Work Setting, 2007

Type of Work Setting

Percentage of Physicians

Private Office or Clinic

57.8

Community Hospital

35.8

Academic Health Sciences Centre

28.5

Emergency Department (in Community Hospital)

18.1

University Faculty of Medicine

17.8

Nursing Home/Home for the Aged

12.9

Community Clinic or Health Centre

11.1

Free-standing Walk-in Clinic

7.7

Administrative Office

7.0

Research Unit

4.5

Free-standing Lab/Diagnostic Clinic

1.3

Other Work Setting

11.9

*Note: The combined percentage may exceed 100 percent, as some physicians reported working in more than one type of setting.
(Source: The College of Family Physicians of Canada, National Physicians Survey, 2007)

Large portions of physicians’ incomes stem from what is referred to as a fee-for-service mode of payment. This approach sees physicians paid a fee for the particular service they provide to a patient. In most cases, however, physicians are not free to set their own fees for their services. This is because basic medical services in Canada are exclusively covered by provincially-run public insurance plans. Moreover, provincial governments negotiate with physician associations in each province to set fee schedules for the province. Accordingly, physicians are thus only entitled to bill public insurance plans what has been negotiated in the fee schedule for the province in which they live.

Hospitals as Semi-Private Facilities

Hospitals are the primary setting where secondary care is administered in the Canadian health care system. Hospitals provide a broad range of services, including acute emergency care, diagnostic testing, prescription drug therapy, rehabilitation services, counseling, and palliative care for those near death. The vast majority of hospitals in Canada operate as private, non-profit entities. They are run by community boards or voluntary organizations which make decisions regarding the day-to-day allocation of financial and human resources.

Nevertheless, it would be incorrect to characterize hospitals as being completely private in nature, as provincial governments have considerable authority over their operation. While the nature of this authority can differ from one province to another, it is generally the case that a provincial government sets and provides overall hospital budgets, in addition to reviewing large financial decisions made by a hospital’s board. Provincial governments also have the power to set the scope of the services offered by a hospital and even close facilities they deem unnecessary.

In examining this idea of provincial government control of health care, it is useful to examine the administrative structure of hospitals in a particular jurisdiction. Ontario has 211 hospitals, most of which are private, non-profit entities (Government of Ontario, 2010). While each hospital is free to establish its own internal governance structure, most have a board of directors and are incorporated under the provincial Corporations Act. These boards have legal and management responsibility for the hospital and administer its day-to-day activities, such as finance, planning, in-patient and outpatient care, imaging and laboratory services, and administration services.

The Government of Ontario, however, exerts considerable authority over these hospitals and their boards. Funding for hospital services is provided by the provincial government through annual budget allotments. This funding is based on a number of different factors, such as past financial needs. However, the provincial government has complete discretion to raise or lower hospital funding. Hospitals must also operate according to provincial regulations, including Ontario’s Public Hospitals Act. The Ministry of Health and Long-Term Care also develops and enforces operational policies for hospitals regarding the services they provide and their financial decision-making. Hospital boards must further submit annual operating plans to the government and must gain ministry approval before making any changes to the services they offer.

Private Participation in Health Care Facilities

While most hospitals in Canada operate in this semi-private manner, some hospitals are completely private, operating on either a non-profit or for-profit basis. These are private hospitals that existed prior to the shift by the provincial governments to the role of health care stewards. As such, these private facilities have been allowed to continue providing medical services. Ontario, for example, has eight such private hospitals that are regulated by the provincial Private Hospitals Act and funded by the provincial government through annual budget allotments.

In recent years, some provinces have also experimented with greater private participation in hospitals through public-private partnerships (commonly referred to as “P3”). Under the P3 model, a private company constructs and owns the physical hospital building and then leases to space to a hospital board. This is different from most other hospitals in Canada, where provincial governments pay for the construction of the hospital building. It is important to note, however, that the hospital board still controls the provision of medical services. Under the P3 model, the private company simply owns the physical building and is responsible for its maintenance. Examples of P3 hospitals in Canada include the Royal Ottawa Mental Health Centre (Ontario), the Brampton Civic Hospital (Ontario), and the Abbotsford Regional Hospital and Cancer Centre (British Columbia).

Private participation in the health care system also occurs outside the hospital realm. For example, residential care for seniors is often delivered by private, for-profit entities. Private companies construct, own, staff and administer seniors’ care facilities, charging clients regular fees for their services. Additionally, many provinces have allowed the development of private, for-profit specialized medical facilities. These facilities do not operate as standalone hospitals, but offer specific services to complement those offered by traditional hospitals. One example is private, for-profit MRI (magnetic resonance imaging) clinics, which exist in British Columbia, Alberta, Manitoba, Ontario, Quebec and Nova Scotia. Patients may gain quicker access to MRI scans by paying for these private services through private health insurance or paying for them directly .

Financing Health Care in Canada

Predominantly public with some private participation

Like health care delivery, health care financing in Canada is a mix of public and private participation. The mix associated with financing, however, differs significantly.

Health care delivery is characterized by private individuals and organizations providing medical services, albeit with considerable government regulation and control. Health care financing, by contrast, is characterized by direct government participation through funding for health care facilities (i.e. hospitals) and mandatory, universal public health insurance plans.

Overview of Health Care Financing

In examining the public/private mix of health care financing, it is useful to begin by looking at health expenditures. Health care costs in Canada are predominantly financed by the public sector. In 2007, for example, Canada spent $138 billion on health care, or $4,400 per person (US$ at 2007 exchange rate). Of that total, public sector expenditures amounted to $97 billion or 70 percent. Private sector spending, by contrast, amounted to $41 billion or 30 percent of total expenditures.

Compared to other western developed nations, this places Canada towards the upper end of public sector financing of health care, though Canada sits somewhat lower than nations such as the Czech Republic, Denmark and Norway, where public expenditures account for approximately 85 percent of total health care spending. At the other end of the spectrum, in countries such as the United States and Mexico, public spending accounts for only 45 percent — less than one-half of total expenditures.

Public and private sector financing can be further broken down by specific financial sources. By far, the largest source of spending on health care is general government funds — direct spending by federal and provincial/territorial governments from general revenue funds. In 2007, this spending totalled $107 billion or 68.6 percent of total expenditures (CAN$ at 2007 rate). The second largest source of funding was private out-of-pocket spending, which accounted for $23 billion or 14.9 percent of total expenditures. Private health insurance was the third largest source of funding, totalling $20 billion, or 12.8 percent. Lastly, premiums paid by individuals to public health insurance plans totaled $2 billion, accounting for only 1.4 percent of expenditures.

Canadian Health Expenditures, by Financial Source (2007)

Type of Financial Source

Expenditures (millions)

Percent of Total Expenditures

General Government Funds

106,528.42

68.6

Private Household Out-of-Pocket

23,121.95

14.9

Private Health Insurance

19,854.69

12.8

Public Health Insurance Premiums

2,199.66

1.4

Other

3,660.43

2.4

Total Expenditures

155,365.14

100.0

*Expenditures in CAN$
(Source: OECD, 2010)

Public Sector Financing of Health Care

At discussed above, the public sector accounts for the large majority of spending on health care in Canada. While all levels of government contribute to health care financing, the largest source of public spending are provincial and territorial governments. This is because the delivery and financing of health care falls under provincial jurisdiction. The next largest public contributor is the federal government, which provides annual fiscal transfers to the provinces and territories in support of their health care spending in addition to direct contributions for health programs and initiatives falling under its jurisdiction (i.e. Aboriginal and veterans’ health, health protection, disease prevention, health information and health-related research). Lastly, local and municipal governments provide small levels of financing for local health initiatives.

While the provinces and territories carry the largest portion of health care financing, customarily there is disagreement on the precise federal-provincial split. Much of this is due to the complex fiscal relationship between the two levels of government and the lack of clear transparency in the flow of health care funding. Each year, the federal government transfers billions of dollars to the provinces. In some cases, these fiscal transfers are dedicated to health care spending, such as the Canada Health Transfer. In other cases, fiscal transfers simply go into general provincial revenues, which may or may not be spent on health care programs (such as the Equalization Program). Some estimates have placed the provincial and territorial share of health care financing as high as 85 percent of all public sector expenditures, with the federal share being less than 15 percent (Provincial and Territorial Ministers of Health, 2000). Other estimates suggest that provincial and territorial spending has typically accounted for only 60 percent of total expenditures, with the federal government accounting for approximately 40 percent (Department of Finance Canada, 2004).

Public health insurance plans alsorepresent a significant avenue of public sector financing. Each province and territory in Canada has mandatory and universal health insurance plans, to cover basic medical services. These are public insurance schemes insofar as they are administered by provincial/territorial governments and funded almost exclusively through taxation. This includes general provincial/territorial taxes and the annual federal fiscal transfers (referenced earlier). Some provinces have experimented with the idea of levying health care premiums, charging provincial residents regular fees for health care services. In addition, some provinces have also experimented with user fees (a flat fee patients pay per medical visit) and extra-billing (allowing physicians to charge extra fees above what they bill public insurance plans). Nevertheless, these alternative forms of funding represent only a small fraction of public sector spending on health care. As indicated in the above table, public health care premiums in Canada totalled just over $2 billion in 2007. General government funding, by contrast, totalled $107 billion.

Provincial/territorial health insurance plans are mandatory and highly monopolistic. Canadians are required to participate in the public financing of these plans through general government taxation and health premiums. Moreover, private insurance is not available (or is very limited) for those services covered by public plans. It is important to note, however, that public health insurance is not completely comprehensive in its coverage. Also, while coverage differs from one province or territory to another, it tends to cover only basic or medically necessary services. This includes most primary and secondary care services, such as visits to the family physician and specialized hospital care. Medical services that fall outside the scope of public insurance plans must be financed privately, either through direct, out-of-pocket payments or private health insurance (see below for more information).

Another way the public sector finances health is through direct program funding. The largest of these initiatives tend to relate to hospitals and other health facilities. As discussed above, hospitals in Canada are typically operated by private community or voluntary boards. Their operating and capital costs are largely funded through annual government budgetary allotments. Governments also spend directly on other programs such as health protection (i.e. anti-smoking campaigns) and health research.

Private Sector Financing of Health Care

While health care in Canada is financed primarily by the public sector, the private sector also plays an important role. As discussed above, public health insurance plans are not completely comprehensive, tending to cover only basic or medically necessary services. As such, the private sector fills the gap, financing those additional care services not covered by provincial/territorial health insurance plans.

The level of private participation in health care financing differs significantly from one province and territory to the next; this is because different jurisdictions cover different sets of services under their public insurance plans. Two key areas of additional care, however, tend to be financed largely through the private sector: dental and vision care. Other areas that often have large private participation include medical equipment and appliances and independent living for seniors and those with disabilities.

Another important area of private sector participation is prescription drugs. It is necessary to distinguish between drugs prescribed and consumed in hospitals and those consumed outside a hospital setting. Drugs consumed in hospitals are covered by provincial and territorial governments, either through their public insurance plans or through direct financing of hospitals. Drugs consumed outside a hospital setting, however, are only partially subsidized by the public sector. Provincial/territorial drug plans are not universal, but tend to target vulnerable groups, such as those in the lower economic classes, the elderly, and the seriously ill. Moreover, drug plans often do not necessarily cover the full cost of prescription drugs. In some cases, individuals are charged a copayment or deductible. The private sector assists, financing drug costs for those not covered by these provincial/territorial plans.

Within these areas of health care, there are two key sources of private sector financing. The first is out-of-pocket payment, which includes direct payment of costs by individuals and their families. In many cases, individuals pay for dental, vision and drug costs directly themselves. In 2007, out-of-pocket payments represented the second largest source of health care financing in Canada, totalling $23 billion or 15 percent of total health care expenditures. The second key source of private financing is private health insurance plans. This includes plans which individuals and families have purchased independently, as well as employer-based plans which individuals participate in through their workplaces. In 2007, private health insurance represented the third largest source of health care financing, totalling $20 billion or 13 percent of total health care expenditures.